City challenged to rezone long-empty dealership site

RANCHO SANTA MARGARITA – The city has scheduled a special Planning Commission meeting on Dec. 19 to discuss rezoning the former Nissan dealership site, which has sat vacant for the past five and a half years.

Theory R Properties bought the site along Santa Margarita Parkway – zoned exclusively for auto-related uses –for $4 million in May 2012. CEO Joe Daichendt said he has contacted 150 automobile industry representatives to find a tenant, but no major manufacturer or dealership group has shown interest.

Now Daichendt is asking the city to change the property’s zoning so he can develop a retail shopping center anchored by a large fitness studio, such as LA Fitness and 24 Hour Fitness.

He has threatened to sue the city, claiming it has an obligation to rezone the property to general commercial district to allow a wide variety of business uses.

Mayor Anthony Beall said the rezoning request should be thoroughly vetted.

“In my opinion, this is one of the most important issues to come before our city in many, many years because it's dealing with one of the highest profile locations in our city and a use that is significant to our city's bottom line,” Beall said. “So it's important that we get this right.”

SITE’S HISTORY

The 4.75-acre property opened as Nissan dealership in 2002.

The dealership changed hands twice before it was shuttered in May 2008. Marc Spizzirri was the owner at the time and also ran the adjacent Honda dealership. He said the Honda store was successful, but not the Nissan one. Spizzirri no longer owns the Honda dealership.

The Nissan site wasn’t visible from the main parkway, and the brand wasn’t as strong as others in town, Spizzirri said.

“If they gave me a Nissan franchise at the location for rent-free, I wouldn’t take it,” he said.

The dealership sites along Santa Margarita Parkway had been zoned for general commercial use at the time the Nissan site closed. Since dealerships are a major source of sales tax revenue for the city, the City Council quickly established a temporary ban on uses for the site other than an auto dealership so zoning options could be analyzed.

Ultimately, the council voted in 2010 to rezone the dealership sites along Santa Margarita Parkway exclusively for automobile sales. In 2011, the council expanded that to include auto-related uses such as repairs and rentals.

CHANGING MARKET

Though auto sales have improved since the 2008 financial crisis, that hasn’t translated into new dealerships, experts say.

“Today, the national trend by all manufacturers is to have fewer dealers, well located, with significant auto experience and well capitalized,” said Reed Chesworth, president of Arc Automotive Consulting, who has worked in the Orange County auto retail industry for the past 30 years.

Chesworth said he was involved in trying to fill the Nissan site in 2010 and 2011.

“After six years of vacancy, while the industry recovered, it is unreasonable to expect it will again house a dealer,” he said.

Two of the three auto dealers in the city support reworking the zoning.

“My first choice would be to have a dealership, but it hasn’t happened,” said Jim Graham, president of Santa Margarita Ford. “The market speaks for itself that it should be used for something else.”

Elmer Ghneim, general manager of Santa Margarita Toyota, worked for the Nissan dealership in 2007.

“That store, it’s never going to succeed as an auto dealer,” he said. “I’d love to see Krispy Kreme or any type of business, anything that would be beneficial to the community, that would bring tax dollars to the city, instead of having an empty building that makes us look like a ghost town.”

Bob Carmendy, general manager of RSM Honda, said he wants to keep the existing zoning. He offered $4 million to buy the property from Daichendt in July.

Carmendy said it’s just a matter of time before the property lands an auto dealership.

“I’m willing to take a chance,” he said.

FUTURE PLANS

If the zoning is changed, Daichendt said he would renovate the building on the site for a fitness club. Along Santa Margarita Parkway, he said, he would build a café, a bar, a restaurant and other stores. Daichendt estimated the center could create 250 jobs.

“The fitness industry is bigger than it’s ever been,” said John Hall, president of commercial real estate firm Lee & Associates - Irvine Inc. “It appears that if you build, people will come.”

However, a fitness club doesn’t generate as much sales tax revenue as an auto dealership, which might be less appealing to the city, Hall said.

The city receives about 1 percent of taxable sales. Daichendt estimated a fitness club at the site could generate about $6 million in annual taxable sales. The Nissan dealership used to generate about $50 million in sales per year on average, Spizzirri said.

Though the city has an estimated $15.85 million in general fund reserves as of June 30, according to the 2013-14 budget, Beall said he is concerned about the state raiding city coffers. Also, it could cost the city millions of dollars to develop Chiquita Ridge, the 92-acre property the city acquired from the county in 2009.

Beall, who emphasized he hasn’t made up his mind on the issue, said Daichendt knew the property had a restricted use when he bought it.

“The key question is whether the argument that the applicant is making is true – that they have completely surveyed the market and determined that there's no business coming to that location,” Beall said.